Gabriel Gets New Investor For Rosia Montana (November 23, 2009)

A risk-tolerant investor with faith that the troubled Rosia Montana gold project in Romania will one day get off the ground, is buying 30 million units of Gabriel Resources (GBU-T, GBRRF-O) at $2.25 per unit for $67.5 million.

The investor — BSG Capital Markets — is part of the Beny Steinmetz Group, a privately owned holding company with global assets in natural resources, real estate, capital markets and diamonds. BSG has interests in Romanian real estate and one of its engineering companies was involved in Romania’s Iernut power plant project.

“They have experience in permitting and constructing large industrial projects in Romania,” Richard Young, Gabriel’s vice-president and chief financial officer, told The Northern Miner, adding that BSG has been active in Romania for at least the past five years.

The group’s mining arm, BSG Resources, operates in Africa and Eastern Europe, including Macedonia

and Kosovo, where it owns ferronickel mining and smelting operations. BSG Resources is also involved in mining diamonds, copper, cobalt, iron ore and bauxite.

“As one of Romania’s most successful foreign investors with extensive involvement in areas of mining, construction and project development, BSG can provide Gabriel with strong support towards advancing the ultimate development of the Rosia Montana project,” Gabriel’s chairman, Michael Parrett, said in a prepared statement.

Notes Young: “They’ve been involved in the mining industry for a long time and have been successful in a number of jurisdictions and understand the unique challenges the mining industry has.”

Under the agreement, BSG Capital Markets will purchase units of Gabriel, each consisting of a share and a warrant. Each two-year warrant entitles BSG to buy an additional share of Gabriel at $2.50 per share for 18 months, rising to $3 for the final six months.

Dag Cramer, the chief executive of BSG Capital Markets, notes that Gabriel is BSG’s first “material investment” in gold. In a press release, he said he looked forward to working with Gabriel to develop Rosia Montana.

Gabriel holds an 80.23% stake in the Rosia Montana project in west-central Romania, which has reserves of 10.1 million oz. gold in 214.9 million tonnes grading 1.46 grams gold per tonne, and measured and indicated resources of 14.6 million oz. gold contained in 350.4 million tonnes of 1.3 grams gold. In figures updated earlier this year, the company estimates that the deposit could produce about 511,000 oz. gold annually at an estimated average total cash cost of US$335 per oz. over a 16-year mine life, and yield an internal rate of return of 28% at a gold price of US$900 per oz.

Gabriel’s three other major shareholders are Electrum Strategic Holdings, Paulson & Co., and Newmont Mining(NMC-T, NEM-N).

Following the financing, BSG will own about 9% of Gabriel, with Electrum Strategic Holdings owning 18%, Paulson & Co. 18%, and Newmont Mining 15%.

If BSG exercises all of its warrants, its stake in Gabriel will grow to 16%, with Electrum Strategic Holdings’ share decreasing to 17%, Paulson & Co.’s to 17%, and Newmont Mining’s to 14%.

At presstime, Gabriel shares traded at $3.02 per share. Over the last year, Gabriel has traded in a range of 99¢-$3.10 per share.

Whether shareholders in Gabriel will ever see a producing mine, however, remains unclear. This year, Gabriel launched a “facts-based national communication campaign” to inform public opinion about the benefits of the controversial project.

Speaking at the Denver Gold Forum in September, Gabriel’s chief executive, Keith Hulley, said the campaign had “triggered significant national interest, generating live debates, talk shows, interviews and independent reportages of the real situation at Rosia Montana itself.”

For now, the permitting process remains tangled up in the courts. The saga’s latest chapter began in September 2007, when the Ministry of Environment suspended the technical analysis committee’s review of Gabriel’s environmental impact assessment (EIA), citing the need for a valid “urbanism certificate.”

According to Gabriel, the company did have a valid urbanism certificate at the time, but the Environment Ministry decided to suspend the technical analysis committee’s review anyway.

Gabriel filed a complaint with the Environment Ministry in October 2007 and when the ministry rejected the complaint and refused to restart the technical analysis review, Gabriel began legal action in the Bucharest Court of Appeal in November of the same year.

Gabriel’s legal action asked the court to address the question as to whether an urbanism certificate is required to continue the technical review of the EIA.

On July 1 this year, the Bucharest Court of Appeal ruled on a procedural motion of the defendants unrelated to the issue of Gabriel’s legal challenge, and as a result dismissed Gabriel’s legal action without considering the merits of or providing an answer to the question Gabriel had asked the court about the urbanism certificate.

Gabriel says it is ready to restart the technical review process as soon as the Environment Ministry gives the green light.

The proceeds of the financing will be used to develop Rosia Montana once the permitting process restarts, Young explains. The company must buy the balance of the surface rights, and even after the EIA is obtained, must secure a number of other permits to the tune of about US$35 million. It also requires funds for detailed engineering and mine equipment, he says.

Young says he’s confident that as soon as the presidential elections — slated for Nov. 22 and Dec. 6 — are over, the government will be in a position to focus on key issues such as the economy and creating jobs.

“Our project will be one of those large industrial projects that do get the government’s attention,” he says.

In the last two years, Romania has experienced two rounds of European elections, parliamentary elections, local elections and now presidential elections.